Best mortgage deals for buy-to-let investors
Buy-to-let investors tend to get mortgages on an interest only basis, though capital repayment options are also available.
Our roundup of the best deals, below, is based on someone borrowing on an interest-only basis against a £250,000-property for 20 years, though you can compare other property prices, repayment periods and loan-to-value (LTV) ratios at moneywise.co.uk/compare.
Our buyer is paying fees up-front.
Virgin Money has one of the best fixed-rate deals for buy to let investors, charging 2.04% until April 2019. With a £1,709 initial fee and monthly repayments of £319 our buyer will pay £9,365 over the first two years. After the fixed-rate period, the standard variable rate (SVR) of 4.54% kicks in and means repayments will rise to £709, though that might change.
Alternatively, Platform has a 2.24% fixed-rate deal until January 2019, which will cost £350 each month with a £1033 up-front fee. Over the first two years our buyer will pay £9,433. When the SVR comes into play (5.50% variable) payments will increase to £859 per month assuming the rate doesn’t change in the meantime.
If you’re willing to take your chances with a variable rate mortgage then Platform will charge 1.64% over the base rate for two years. However, there’s a floor price on this deal, so the rate will never fall below 2.14%. This effectively means borrowers won’t see any benefit if the rate falls further, but on the other hand, they won’t pay more if the base rate returns to 0.5% either.
This mortgage will cost £334 per month in our example scenario. Including the £1,033 initial fee our buyer will have paid £9,049 after two years. After two years the 5.5% SVR (variable) will push rates to £793.
Deals are slightly more attractive with a 40% deposit, with rates available for well under 2%, though you’ll need to remember to factor in the up-front fees.
Platform lends at 1.79%, fixed until January 2019, meaning it’ll cost £224 per month to borrow £150,000. However, borrowers will need to pay £1,033 in up-front fees, so the cost over two years is £6,409. The SVR is relatively high at 5.54% SVR, meaning repayments will almost triple so it’s vital to make a note to remortgage.
Among the top variable rate deals, again Platform comes out on top. It will lend at 1.69% (1.19% over the base rate), involving repayments of £211 per month with a £1,033 up-front fee. That’ll cost £6,097 after two years, when the 5.00% SVR will kick in. That’ll push payments to £625, assuming the rate doesn’t change.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.